The Indian rupee is facing mounting depreciation pressure as elevated global oil prices combine with chronically weak capital inflows, according to separate analyses from ING Economics and Societe Generale. While government fuel subsidies have shielded consumers from the full force of the energy shock, the currency has absorbed the brunt of the adjustment, raising questions about the sustainability of the current policy stance.
ING’s Deepali Bhargava, Asia‑Pacific Chief Economist, noted that the rupee’s slide reflects valuation‑driven capital outflows rather than a crisis‑level current account deficit. “Unless those inflows recover, the rupee’s vulnerability is likely to persist,” she wrote. Portfolio outflows and compressed FDI have left India’s external position softer than headline numbers suggest, even as the current account deficit is forecast to widen to a manageable 2.1% of GDP in 2026.
On the ground, India has limited the pass‑through of global crude prices to retail fuel. Gasoline prices rose only about 8% in May, making the country one of Asia’s least affected at the pump. Consequently, consumer inflation has ticked up a mere 20 basis points. However, wholesale price inflation doubled to 8.3% year‑on‑year in April, driven by a 25% surge in fuel and metal costs. Bhargava cautioned that “if elevated oil prices persist, upstream cost pressures will increasingly be passed through to consumers.”
Societe Generale highlighted the RBI’s narrow policy corridor, with the central bank forced to balance inflation control, growth support, and exchange rate stability. The rupee has depreciated roughly 4% over the past six months, touching record lows near 84 per dollar. The RBI has already drawn down nearly $40 billion from its FX reserves – now around $580 billion – to defend the currency, a pace that could become unsustainable if oil prices stay high.
Both institutions warn that while export‑oriented sectors like IT and pharmaceuticals may benefit, the net economic impact is likely negative. ING sees USD/INR ending the year at 95.50, with gradual stabilisation rather than a disorderly slide, while Societe Generale underscores that the central bank’s credibility and fiscal discipline will be tested in the months ahead.
